Apple had $145 billion of cash and investments on its balance
sheet according to its second quarter results in April. Hedge
fund manager David Einhorn launch a public battle against the
company earlier this year in an attempt to persuade it to unlock
some of its cash pile.

Fellow tech giants Microsoft and Google are also sitting on
substantial cash positions. Microsoft has $74.5 billion in cash,
while Google's hoard is $50.1 billion.

But Smead warned: "Most of these companies don't come into life
being great investors or great capital allocators."

He said he used to own Microsoft shares because the tech company
fit six of the eight criteria his company judged it on "to a
tea." But he added that it fell down on shareholder friendliness,
and had failed to make the most of online opportunities.

"They've probably lost more money in the last 13 years in the
online business than any single corporation has lost in a 13-year
stretch in history. They lose money on each dollar of sales and
they've been trying to make it up on volume," he said.

Large-Cap Rally

Smead's Value Fund, which invests in large-cap stocks has risen
29 percent between March 2012 and 2013 and Smead said he was
confident the rally in large-cap stocks will continue.

According to him, the U.S. is still in the early stages of a
five-year economic recovery, driven by improvements in housing
and autos. He said large-caps were a good place to be because two
of the largest money groups - the so-called echo-boomers
(children of the baby boomers) and large institutions – are
coming from incredibly low ownership of large-cap stocks.

"So the psychology, a year ago, was that you knew – if you're a
(large cap) equity fund like us - that the wind was going to be
at your back," he said. "To us, this reminds us a lot of 1983,
when the market had gone up in 1982 and 1983 off the bottom about
60 percent. And you got a fluffy excitement period."

Sectors to avoid, according to Smead, included energy, basic
materials, heavy industrials, telecoms and utilities because
these capital-intensive companies are the highest valued and
would be hardest hit by a rise in interest rates.

He added that many of these sectors are closely linked to Chinese
economic growth, and that anything related to China – which he
said is heading for a deep recession – should be avoided at all
costs.

"We are playing what goes on inside the borders of the U.S. as
much as we can and staying away from what goes on outside the
U.S. as much as we can."

It is at this relatively early point in the economic recovery,
when confidence is growing, that consumers start spending on
non-essentials, according to Smead.

"We used to call it "pent-up demand" in the early- to mid-
eighties, coming off a deep recession," he said. "We want to be
overweight in what we call 'addicted customer-base consumer
discretionary'."

Among Smead's top picks are shares of Disney, Cabela's and
Comcast.

Smead added that big lenders would also benefit from the U.S.
economic recovery. "We also own the large banks. We think that
large banks are a fantastic play on the recovery in housing.
Because they own a lot of foreclosed homes, and their balance
sheets get marked up because of it."